Downgraded US Credit Rating: What comes of Coddling the Super-Rich

The decision of Standard & Poor to downgrade the credit rating of the United States of America from AAA to AA+ was clearly based on uncertainty in two major areas. The first and least important was the wrangling on the debt ceiling, which took the US to the brink of not being able to meet its debt servicing obligations for as long as the impasse lasted. The second was the increasing refusal of the American business classes to pay their fair share of taxes.

If a couple borrowed a big sum from the bank and had debt servicing obligations of say $10,000 a month, and they were repeatedly late and had a series of big shouting matches in the bank lobby about whether they might not just skip this month’s payment, then the next time they went to that bank for a loan, it would be declined or higher interest would be demanded, since they were clearly acting as though they were a bad bet for the loan officers. Getting a loan has in part to do with reputation, and with the lender’s expectation of being paid back with interest regularly and without delay. When you delay making a payment, you are in essence costing the lender money. If the lender has lots of people asking for loans, why would she make one to the couple that seems flaky?

So the first reason for the downgrade was the irresponsible and flaky behavior of the Tea Party, which created an artificial crisis for the benefit of its Koch Brother patrons, so as to throw more government resources at the super-rich and fewer at ordinary people.

The second reason for the downgrade was Dick Cheney’s insistence on deep tax breaks for the ultra-wealthy, and the Republican Party’s refusal to revise them. Obama wanted to raise taxes on the multi-millionaires and billionaires, but didn’t have the votes in the Senate to do so, and the Republicans threatened to take the welfare of ordinary people hostage (as they just did with the debt ceiling mafiosi tactics). I thought at the time that Obama should have dug in his heels and just called the Republican bluff, since it was clear that they would use those tactics on him at some point anyway.

Standard & Poor is saying that if you project out the US structural deficit– caused mainly by the Bush tax cuts, prescription drugs give-away and debt-financed wars–over the next ten or fifteen years, it is going to get worse and worse because rich people have started refusing to pay their taxes in the US. There is a long-term structural deficit that the Republicans in Congress are refusing to allow the country to redress. In short, they are talking about this chart, which I posted last week:

It would not take a large tax hike on the wealthy to fix the problem. Bill Clinton did it in the early 1990s. People who say that this step would not resolve the difficulty are shills for the super-rich and are refuted by the successfully balanced budgets of the late Clinton period.

What I read in economics was that it is bad for the economy to have a high gini coefficient, i.e. it is bad to have a big gap between a handful of wealthy at the top and great masses of poor at the bottom. It is much better if there is a big middle class and the rich aren’t so very rich.

Why is this the case? Well, you would want everyone who wanted one to be able to buy a car from Detroit. When people buy a Chevy Volt, that creates jobs at GM, and it creates demand for spare parts, which creates more jobs, and it creates jobs for car salesmen and for the people who make the battery, etc., etc. The real job creators are us ordinary folks, the consumers; we create jobs when we buy goods and services.

So if there are roughly 75 million families in the United States, you’d like them all to be able to buy a Chevy Volt if they wanted one. But if you reduce them to living on food stamps (as 40 million people now do), then they can’t buy a new car, even on credit. Now you’ve set up your tax policy to throw trillions into the hands of 3 million people or 750,000 families. But how many cars are those families going to buy? Even if each had a fleet of ten, that would be as though 7.5 million families each bought one. It can’t compare to having 75 million families each buy one.

Tax policy helps to decide on the distribution of wealth in society. Using it to throw all your money to the top 1 percent and to reduce everyone else to relative poverty is a big drag on industry and services and causes unemployment. That’s right. If you don’t have a job, it is in part because Cheney cut taxes on the super-rich and made it impossible for the Federal government to ameliorate the economic straits of the middle class with various programs. This problem just got worse, with the budget deal this year.

Here is what the US gini coefficient (the measure of economic inequality) has looked like for the past over 40 years:

We increasingly look like a Third World robber baron country with a few rich at the top and luckless peasants toiling below.

The wealthy use the nation’s highways to transport their goods around the country. Interstates mainly benefit trucking companies and their clients. It is the trucks that are hard on the roads and require them to be rebuilt every summer. The highways are paid for by taxes. When Congress lowers taxes on the wealthy, it is saying they don’t have to pay for this public good that they benefit enormously from. It is saying that the people who make $50,000-$200,000 a year have to pay for the highways instead. And if the government uses tolls to pay for the highways, it is saying that even the minimum wage worker who uses a toll road to get to a fast food restaurant for employment has to pay for these highways and for the constant damage to them done by the big trucks serving the corporations, who are now held harmless from paying their fair share. Reducing taxes on the super-wealthy is a way of increasing taxes on everyone else.

Of course, joblessness was also caused in part by the near-Depression of 2008-2009 and its aftermath, which was caused by the government not regulating big banks and by it allowing most corporations to act like banks.

Most of our problems come from the US government coddling very rich people, which it does because the very rich pay for politicians’ campaigns and expect a payback. And as more and more of the country’s wealth has gone to the 750,000 families, they have gained more and more control over Congress. (Of course, it is the 400 billionaires who are the big players here). Their interests are increasingly not the same as the interests of the rest of us, and they are intent on screwing us over big time.

Standard & Poor does not care about whether rich people feel coddled. They want to know whether the US government is going to pay back the trillions it is having to borrow because it won’t tax the people with trillions of dollars. They don’t see how it can be sure of doing so with real dollars that are worth anything (the US government can always print more money to “pay,” but that will cause the real value of the currency to fall). So they are warning investors about that.

The likely outcome is that it will be more expensive for the US government to borrow money, which will worsen the debt crisis.

The long term effect of these trends will certainly be the decline of the United States, which has already begun. And it will be a further decline in the standard of living of middle class people in the US.

I spent the summer in places like Tunisia and Egypt, where people were similarly taken advantage of by the corrupt and the wealthy and by the politicians the latter bought, and where they rose up and got rid of the miscreants. It is a matter of some astonishment that most Americans are just bending over and taking this treatment without so much as a protest.

38 Responses

The whole debt debate is so irrational that it’s hard to make people understand how wrong it is.

The US government is not a household. A household is a currency user, the US government is the currency issuer. As such, the US government will ALWAYS be able to pay it’s bills. It can create as much money as it pleases. The issue is not solvency (i.e. running out of money), but inflation. With almost 10% unemployment, inflation seems truly a non-issue at present. The debt debate however isn’t about inflation, it’s about know-nothings thinking the US government will run out of money, THERE’S NO SUCH THING, the US government can’t run out of money. If there will ever be a default, it will be a political choice, not an economic neccesity.

Of course you are right that the government can always print money to pay its bills. But that causes the value of the US dollar to fall relative to other currencies, so the lenders are not getting paid back at full value. The worry is not about default but about fair return on the loan and possible decline of the value of dollars held if the US goes on borrowing trillions with no productivity to back them, and then just revs up the printing presses.

If S&P was worried about a decline in the value of the dollar, then it wouldn’t just downgrade US treasuries, it would downgrade ALL dollar denominated securities.

I also do not agree that printing money will neccesarily cause a decline in the value of the dollar. Just look at Japan, it printed huge amounts of money, the Yen didn’t plunge, quite the contrary.

The US does however have an overvalued curreny owing to it’s status as a reserve currency, but in this case TINA holds, there is no alternative to the US dollar. So in the short-medium term I don’t think the US dollar will lose it’s status, even if the US government will do the right thing and print a lot of money to get America back to work.

The dollar has long been seen as a reference money. International transactions were made in dollars, because it was considered a stable money. This has long allowed the US to get very low interest rates, lower interest rates than countries having a similar situation with respect of the ratio debt/GDP. When you consider this ratio + the economical growth, the US is not in a much better situation than Greece or Portugal, yet those have to cash for two digits interest rates.
S$P and other Us notation agencies have used double standards in their notations, but this is coming to an end. The Chinese Dagon agency has lowered its US note one semester ago. They are are gaining more and more credit and had very harsh words against the US yesterday, stating that the US should stop living on a higher standard than its means and let the rest of the world cashing for it.

During the last days of Bush & Cheney administration, I was taking a group of people to Kenya. I asked the hotels to quote me their rates. To my surprise & shock, one hotel from the remote area of Kenya quoted me their rates in Euros. I was astonished. The hotel was not accepting mighty US$.

Igor

“A household is a currency user, the US government is the currency issuer. As such, the US government will ALWAYS be able to pay it’s bills. It can create as much money as it pleases.”

Oh, dear GOD. It can “create as much money as it pleases” UNTIL IT’S NOT THE CURRENCY ISSUER ANYMORE! What don’t you get about what’s going on here? The United States has been ABUSING the dollar’s status as the world’s reserve currency for the last 80 years, and the world (correctly) has decided that it’s had enough. And that’s why the world is starting to move toward a basket of currencies or to gold or silver as the reserve currency. You know what’s going to happen then? The U.S. government will NO LONGER be able to simply “create as much money as it pleases” to pay off its debt load, and the economy will collapse (and we’ll start another world war). I mean, I don’t get it–did you people actually think that the status of the U.S. dollar as the world’s reserve currency was created by decree from God or something like that? LOL!

W.R. German

@Gorgonzola, the President did anything but yield to the Tea Party’s demands.

You obviously did not take the time to actually read the Debt Ceiling agreement, which brilliantly uses automatic Defense cuts to force Congress to get to work, all the while pitting billionaires against Defense contractors.

Here is a good article for the possible explanation for the relationship between corporate profits and unemployment still high: link to foreignpolicy.com

A couple places have also pointed to corporate profits being derived mostly from foreign sources, which isn’t an argument for hiring at home, but rather investing abroad. See here: link to businessweek.com

When you say “joblessness was also caused in part by the near-Depression of 2008-2009 and its aftermath, which was caused by the government not regulating big banks and by it allowing most corporations to act like banks,” I get the impression you are trying to argue against the repeal of Glass-Steagall (Maybe I’m wrong), but in fact the repeal probably made the crisis significantly less bad: link to theatlantic.com

I’m pretty sure this artificial crisis didn’t have a positive impact on the Koch Brothers, so I would encourage you to stop unnecessarily bashing them. Yes, they fund organizations that disagree with you. Isn’t that good in a healthy democracy? It’s not like their funding is secret. The difference is unlike their roughly equivalent counterpart George Soros on the left, they just don’t go out in public nearly as much.

Other than that, I think there is a lot of validity to what you posted.

If we’d never repealed Glass-Steagall, many of the financial divisions that issued bad debt due to other agendas might not have existed in the first place. There’s also the matter of home equity loans, which poured trillions into the economy and logically made people far more willing to borrow more to build bigger houses, and the securitization of debt, which entirely destroyed the rational incentive of lenders to consider creditworthiness.

The crash was due to the previous bubble, thus the Kochs may have come out ahead in the entire cycle, like most rich people. That’s what the worsening boom-bust cycles of your apparently preferred Gilded Age were doing, causing a growing gap between the top 1% and everyone else. The rich are always first into an asset bubble and the middle class are the last ones in and get creamed the worst by the crash. Thus the more volatile – uh, I forgot to use neoliberal-speak – the more “vibrant” the economy, the faster wealth is polarized.

There is a perception expressed in advocates of flat tax that the rich should only have to pay the same percentage as everyone else. This overlooks a few things. One, they benefit more than others as they have access to the physical infrastructure, the military protection, the educated, healthy consumer and labourer, the justice system. Some feel that high unemployment keep wages down, but they also affect consumption. Other big factor is that everyone does pay at the same rate. It is only on the marginal rates that richer people pay more than others and in fact most can afford accounting advice or can manipulate legislation (best example hedge fund managers) to minimize taxes. The taxes have never stopped someone from working harder or smarter (or bending the rules) to get into a higher tax bracket if they really want it.
When radicals say make the rich pay that might be a bit harsh and where the line is is unclear, but it is clear they could all pay more and we all would benefit.

Jason

“It is a matter of some astonishment that most Americans are just bending over and taking this treatment without so much as a protest.”

I find this astonishing as well, but I imagine it’s attributable to this sense of guilt cultivated in the US for having a lack of success. This rugged American individualism that we are imbued with constantly creates a sense that if one is without a job or is not comparatively wealthy, it is due that individual’s poor decision making in life, that they have brought poverty upon themselves and are solely to blame for his/her own predicament. I sense this belief is particularly prevalent amongst the middle class and is significant driver in their complacency regarding systemic issues that are undermining them. What makes it pernicious even more so is that this thinking is self reinforcing, as taking ownership or accepting(mistakenly) one’s fate is viewed as somewhat commendable and distinguishes them from those whom raise their voices against the system. Obviously it will require a more severe shock to the US public before it becomes truly restive.

Jason, I think that you are completely wrong. The “compassionate conservative” mindset projects that if a person is poor or not successful, it is due to that person’s poor decision- making in life, and that the person is solely to blame for it. This is, of course a total crock, as it does not take into consideration any outside circumastances whatsoever.

Whereas you believe that the middle class and poor are feeling “guilty”, we are actually feeling angry that our lifetime of hard work and playing by the rules has achieved little reward for it, and that the old-fashioned ‘American Dream’ is no longer attainable by the same means which brought their parents into the middle class.

One of the most appalling things about our economic decline has been the role the courts have played. In December, 2000, five Republican political operatives took the Presidency away from a man who won the popular vote would have continued the responsible spending and taxing policies of Clinton, in favor of a man who recklessly cut taxes, accelerated spending, and drove the country deeply into debt. And in the 2010 Citizens United a different cast of five political justices gave its ok to the injections of large amounts of political contributions in behalf of corporations and oligarchs.

If you are putting together a list of culprits, put the Republican Supreme Court justices at the top.

Did you read Jane Hamsher? S&P changed rationales for downgrading US debt over time. They were also the ones that gave investment grades to MBS junk that helped lead to the 2008 financial crisis. Their pronouncements should be taken cum grano salis. We’re supposed to take them at their word this time? Atrios said, “Apparently we’re supposed to care about what some idiots at some corrupt organization think about anything.”

The US debt to GDP ratio is 100% Japan’s is over 200%. S&P downgraded Japanese government debt from AA to AA- in January 2011. Japan is still able to borrow, i.e., sell 30 year government bonds at 2.2% Japanese inflation is running at an annual rate of 0.2%.

Joe

Juan — It should be noted that the same people who downgraded our credit rating were the ones who fully backed the junk mortgage bundlings with a Triple-A score… I don’t think reasonable people should assess their ratings as either particularly accurate or even intellectually honest (they are often swayed by the interests of powerful groups on Wall Street).

I think Jesse Frederick’s second comment makes an extremely important point that deserves a response.

Simone Davis

I agree emphatically re the consequences of refusing to tax the rich. That said, I would so love to hear your thoughts on Standard & Poor themselves — the rating agencies are hardly neutral players in this debacle, nor is this downgrade a simple reflection of the economy’s dysfunction.

The last time our forefathers stood up to the rich, capital was not mobile. Meaning a billionaire couldn’t threaten to move his steel plant to Mexico, or even Alabama, to get Pennsylvania to cut benefits to the poor. It may be that the only thing that can stand up to globally-mobile capital is a global workers’ movement, and we’re a long way from accepting that we’re in the same boat as the workers of China or South America.

However, I have a feeling that the politicians in those countries realize that they now have the leverage – multinationals want to move there to exploit cheap labor in the short term, but their governments can thus impose taxes and concessions on the carpetbaggers to invest in training for better jobs in the long term. Which means higher pay, and more taxes. Why can’t our politicians see this? Are we in such an immediate crisis that all we can think to do is cut wages? Or have we lost hope that we can ever figure out what to do for a better living?

Juan, you just restated what Jesse was saying. Yes, inflation means the creditors get paid back with money that has less value than what they loaned. That’s pretty much inflation in a nutshell.

It’s also an almost classic response used by lots of countries over time as part of a strategy to improve competitiveness and work down protentially crushing debt loads. It does cause some pain for domestic creditors, increases the cost of imports, and drives up the interest rate demanded for future loans.

Done right – which means rebuilding reserves after you get people back to work and paying taxes, it’s an excellent response.

But as has been pointed out – the US does NOT have a DEBT crisis. Interest rates are at historic lows, big companies (and the very rich) are making huge profits and sitting on the money while the US Government, with most of the Republican party office holders and too many of the Democratic office holders under the control of the corporations and uber-rich, has a totally self inflicted and very easily solved REVENUE crisis.

Eliminate the Bush administration tax cuts, (re)close a lot of loopholes for business (you make a profit, you pay taxes on that profit), slowly trim back the US military budget to the level required for a more reasonable mission (no ruling the entire world), etc. Of course, that may make the uber-rich “go Galt” – which should result in an immediate boost in the US standard of living.

…The US doesn’t have a debt crisis…
… Yes inflation means the creditors get paid back with money that has less value than what they loaned …

Just wait for some more months. The US debts is largely in foreign hands. Do you believe that they are soil ing to pay for US overspending and for illegal costly wars ? The Chinese are owning 60% of the US debts, add the rest of Asia (Japan, Korea, etc..) plus the petro monarchies and I bet that about 80% of the US debts are owned oversea. The only reason why the US has low interests rate is because the dollar is a reference money. However, it will soon be loosing that status. There are ongoing discussion at the IMF in order to establish a new reference for international transaction. It won’t be a single currency any more, but a choice of 5-6 strong currencies. The dollar will be one of them, but njotthe only one. Printing more dollar and let it go down to unheard lows is only hastening the process. Once the dollar is evaluated like any other money and once all the defavorable elements are taken in account, you can bet that the interest rates will get higher and here you’ll have your debts crisis.
Keyneysianism is a good thing in hard times : the state spends more money, giving work to jobless people and contracts to other wise failing companies, this increases consumption and economical growth.
The problem with the US are twofolds :
1) Military Keyneysianism : you made debts to finance illegal and unfair wars, which did’nt increase the buying power of the masses, only the profits of the military-industrial complex, which doesn’t increase internal consumption that much.
2) You didn’t reimburse part of the debts when the economy was blooming. Instead, you allowed taxes cuts on the riches. Now of course, when more Keyneysianism is needed, you won’t be able to get it, or only at higher rates.
The US is living on the back of the rest of the world. I feel for those with lower income, who will have to pay for the riches and powerful corporations, who are also cashing on their backs.

I think that the collapsing of the communism was a very bad thing for the lower classes : since the upper classes don’t fear it anymore, we have been slipping back to wild capitalism : that is what the Gini coefficients of prof. Cole are showing. European social democracies which were long seen as a wall against communism are taken down piece by piece, like the few social measures taken by the Dems in the US.

Capitalism may collapse, just like the former USSR, but I don’t know what will come then; I don’t see many reasons to be optimistic, given the political situation of the left parties.

“Americans bending over and taking it” — American’s have been conditioned to take it. Americans have a few additional issues in our nation the Middle East is not facing currently. The Middle East is unique in a quality America lost a generation or two ago, the Arab countries have stronger family and community ties to one another. America lost its sense community where people knew each other and many of American families are fractured – American’s are disenfranchised and have developed a ‘me’ centered mindset.

Another reason, and some may disagree with me, is the American church community. The Quakers had strong influence in the abolition movement and the women’s suffrage movement. The rise of the Civil Rights came from black church leaders and within black churches. The rise of the Civil Rights movement did not occur in only one generation. The talk of black civil rights had been groomed and nurtured for many generations within the black church community. The church system focus now is on two issues, abortion and gay rights, and has for the most part stayed silence on issue of the shrinking middle class and other important issues. Karl Rove has done a fine job of manipulating the American church leaders and pulling at the strings of their members and pastoral leadership, keeping the focus on two issues while others slide by without notice.

Maybe the fear of challenging the political group which is perceived as having, and has worked hard to state they represent and are the protectors of ‘family values’, when in reality some of the people in the higher levels have damaged the family. American’s listen too much to people’s words, and not their actions, they are lulled away and seduced by cunning political power brokers and power hungry politicians.

The downgrade was based on nothing more than the fact that this rating agency is the enforcer for financial gangsters who are trying to force their own preferred politicial policy on the country. In smaller countries the World Bank and the IMF have performed this role of threatening to break the country unless they changed their government and social policies to conform to “free market” standards, “austerity” (for the working class and poor) and to open up their economies to exploitation by global corporations.

However since the USA and the IMF are one and the same, these gangsters have to find another way to promote their threats in this country. The rating agency fills that role.

If our own government had enforced its own law to prosecute these companies for fraud in falsifying the security rating of the worthless securities sold by our own banks and for essentially taking bribes to do so, Standard and Poors would be out of business right now. It only goes to show that the untruth of the old maxim about there being honor even among thieves.

Wrybread

Underlying the issue of how printing money affects supply and demand for U.S. financial assets … is credibility. The dollar has enjoyed its position in world currencies because people believed that the U.S. would not dismantle the engine of its greatness — that the U.S. could be counted on to grasp and reinforce the attitudes and inclinations that made it a great nation. It is this credibility and its basis which the right wing has so stupidly defaced.

One stands aghast at such effrontery. I also have wondered at what point the U.S.’s own “Twitter revolution” will take shape. With the political bankruptcy of two-party politics and its pre-emption of an increasingly capricious, detached, “bought and paid for” government, such a development looks more and more like the only means left (perhaps aside from the unlikely possibilities of secession or regionalization) of effecting positive democratic accountability in the U.S.

Unfortunately we cannot pass laws mandating an intelligent, well-informed electorate. In the U.S. we’re stuck with depending on human nature to spur people on to being well-informed. That’s thin motivation for constructive social participation, especially in the face of the easier but destructive options of blame, hate, ridicule and self-interest. The latter appear to have become the attitudes that will fuel political changes in the current century, given the way our “democracy” has allowed itself to be degraded.

Professor Cole’s chart speaks implicitly to the electorate’s capacity for self-deception. We are now a people who can look at overwhelming data like this and still blame “them.” By the time we understand that “them” was “us” all along, it will all be water over the dam.

We are seeing that both national reputation and national consensus are hard won and easily lost. It’s an amazing evolution in our society, and “proof of the pudding,” in that folks who knew better all along, have been unwilling to work hard enough at the difficult and uncomfortable tasks that merited the slogan “E pluribus unum.” We now face the discouraging prospect of “E pluribus Balkans.”

Let’s remember that S&P likely has a bunch of stuff in mind in publishing the “downgrade.” Those people were the ones who morally underwrote the whole bubble of derivativosecuritization by stamping those bags of crap called CDOs and CDSs as AAA “investments.” Their credibility is their fortune, and while that good-will component ought to be valued at a lot less than zero, a lot of people who are sitting at the casino tables are going to do really well on various “trading strategies” that will produce gains on the “bad news” that S&P supposedly is so seriously announcing.

Most people are pretty ignorant and also stupid, bred to that state by steady diets of fraudulent information. See how easily everyone takes the word of a known cheat and liar, that took a lot of money from the entities whose fraudulent “investments” it touted with those high ratings, compounded by a noise machine that has to fill the air with fear and “content.”

Where are the prosecuting attorneys that ought to be cross-examining that liar, that fraud, and enlightening the jury of public opinion on the nature of the beast and getting down to that “Were you lying then, or are you lying now? Or is it both?” set of questions?

(PS- on that Fourth Estate thing, my local St. Pete Times has a front-pager lauding the “detailed information” put out by Nicholas Schmidle on “the Osama takedown,” which appears to be another NYTimes sucker job being “taken seriously” by our carefree, fact-impaired media types.)

Masked Defender

This is a serious conceptual error on your part; Bush II’s tax cuts were very progressive. There were earned income tax credits, steep cuts for the lower and middle income, along with cuts for the wealthy. In fact, only 20% of the cuts went to the wealthy (I realize that made them vastly more wealthy). The point is that Obama won’t – WON’T – return to the Clinton tax regime for that reason. Even if you go back for the rich, that’s at best $80B and it may well be here and now, as I believe it to be, that $80B has a multiplier effect of 2-3. Democrats seeth at rich people on their yachts, but in reality modern technology and innovative financial devices, yes, derivatives, have made the wealthy increasingly efficient at job creation. The derivatives caused the banking crisis in that one instance which the TARP-loan fixed (and the government has been repaid every penny). TARP was brilliant. But in the other 999 instances derivatives have facilitated risk-sharing so that those great but very risky investments in, for instance, Google, can be made by 10,000,000 individuals instead of 10. Democrats want to the government to take over job creation because they think private enterprise is unfair to it’s employees; but since it’s using other people’s money to do it, they just don’t care who they hire, what they pay them, how productive they are, etc.

This is an epic catastrophe; an $800B tax cut in 2009 and the US would be rising like a rocket. And now who suffers the most? The rich are still on their yachts probably bottom feeding great stocks right now. The poor are unemployed and miserable.

Democrats have a Reaganomics problem; they won’t acknowledge it’s success. And relative to Obamanomics, it’s horrifying the dissonance in this regard. There is a bottom line, you can redistribute the wealth or facilitate job creation, but not both. The result is the late 1976-1982 and 2008-????. Note, Pelosi took over in 1/2007 and it was Freddie Mac and Fannie Mae that was the prime cause of the housing bubble, exacerbated by the failure of the ratings agencies, S & P, etc., to re-assess the value of derivative bonds based on the changed lending practices.

Couple points to maybe provoke thinking about ROOT causes, and get beyond what amounts to a bunch of pointless bleating…not that I’ve got any answers…

1-With the oligarchs (ie, Rich), there is just so much more sophistication than there once was. The spin and manipulation by and of the media, to get guys like Joe The Plumber to think HE was actually on the inside (in real life he was a plumber assistant, as I recall). There are an awful lot of people out in Red American who just cannot get their heads around the idea that they’re being conned into backing a perspective that is wholly against their best interests.

2-An extraordinarily highly-leveraged society. People don’t have the time to read critically, even when their putative educations give them the tools needed to look at issues/events critically. There isn’t a college educated (whatever that may mean) person out there who is working a simple 40-hrs a week and coming home with the mental energy in reserve to think/read critically (emphasis on word “critically”: even zoning out in from of The PBS Newshour barely counts). 40 hours really equals 50, plus a commute, and I’m leaving out the young and ambitious who have the ability to make a difference as advocates. What you’re left with is professional researchers like Prof Cole, or journalists who somehow have the freedom to speak/write freely. I’m thinking here specifically of guys like Jeremy Cahill, who has done a lot of writing on the Blackwater/Xe mercenaries.

3-Consistent with the above, people are up to the eyebrows in debt or otherwise justifying scared witless about what’d happen to them if they went active. Who has the fiscal freedom of action to think about doing more? Blogging is fine, but I sense a lot of disconnected nodes out here. At some point there has to be real organization with real power to force change, whether or not it needs to take to the streets.

I don’t know who those protestors were in Wisconsin when the republican governor/party essentially steamrolled them, but there is an enormous amount of pressure that can be brought to bear against folks who are tempted to do more, especially if/when they are in a position to be effective. Normal folks cannot afford to just blow off a job, even a crappy one, any longer.

I would speculate that those folks involved enough to just read this blog regularly are often somehow beyond such fiscal/physical constraints. I’d bet a big portion of the regular readers here are retired, semi-retired, or otherwise in no real position to threaten the oligarchs. Myself, I’m just a guy living under a bridge with a (small) social security income and using a library computer.

Ben Leeman

As an Australian, living in Melbourne, I wonder whether the USA is rapidly becoming a failed state. The unsustainable wars against those who oppose American policies in Iraq, Afghanistan AND ELSEWHERE costs most Americans dearly, but benefits a few of the wealthy. The increasing international loss of respect for American policies, together with its inhumanity abroad encourages peolpe abroad to question American’s religious value, beliefs and actions. Its disregards of Americans without a job – now more than 14 million – its cutbacks on education, healthcare and community services does not relate well with being the clever country. Sooner or later an unequal country results in conflict: people can take only so much, then they rebel because they have nothing else to loose.
The USA , no longer the most powerful country, unable to stop the bloody war mongerings, China, India and and others will become the new world leaders. The world will be more peaceful and more sustainable, and at a time when action on climate change and peak oil is urgently needed, the whole world will benefit.

S&P are frauds and thieves. Their downgrade of US credit is another scam to put money in the pockets of the Big Money Boyz. It will add to our debt by increasing the amount of interest we will have to pay on our debt. We are being played.

S&P rated Lehman Bros triple A just before they tanked. They called mortgage backed securities solid just before they evaporated. Now they have the chutzpah and unadulterated gall to judge US securities? Yeah, somebody’s scamming somebody.

Follow the money on this one and you will see who’s pulling the strings.

Vahid Ranjbar

I think you are totally right on the issue of wealth distribution in our economy. My question is where are the economists? Throughout this near depression, with the exception of Robert Reich I don’t hear anyone on the left explaining clearly to the American people that “no ..taxes are not everywhere ‘bad’ for the economy”. That the form of the wealth distribution function in a given economy matters profoundly and in fact most likely drives economic recessions and depressions. Somehow the pernicious ultra free market ideas of Milton Friedman are given uncritical assent in the common consciousness of policy makers. There needs to be a new cadre of economists who can support policy decisions to normalize the current asymmetries in the wealth distribution that exists in the US and elsewhere.

I fear the debate was a dog and pony show to serve two purposes. One was to offer our creditors a convincing argument that we should be allowed to borrow more because we will restrain government spending. The other was to justify higher interest rates during a prolonged economic slump.

“The long term effect of these trends will certainly be the decline of the United States, which has already begun. And it will be a further decline in the standard of living of middle class people in the US. “

It’s called demand destruction and it is necessary b/c the US uses 1/4 of the world’s resources.

Prof. Cole, Regrettably, Obama and the democrats IMO are just as guilty as the republicans in this sordid matter.

He was elected with a solid majority and mandate for change and he has systematically squandered whatever political capital he has had and his public support. In Q1-2009 he could have pushed through meaningful financial reforms, but he didn’t. The reason he didn’t is because Wall Street was his largest source of campaign funds.

“Obama wanted to raise taxes on the multi-millionaires and billionaires” — this is only partially true. He wanted to raise taxes on families with incomes over $250K. People at that level would pay the same rates as billionaires on earned income. Obama has not proposed anything approaching the graduated rates we had prior to Reagan.

Obama has not proposed to tax hedge fund managers at ordinary income tax rates; those vultures pay 15% capital gains rates, or even worse, borrow against “retained earnings” and pay NOTHING at all.

Face it, the democrats are equally guilty in this mess as the republican. Obama is simply less shrill than the Tea Party when he facilitates his Wall Street benefactors looting of our 401Ks and pension funds through limp regulation. Obama has explicitly put Social Security and Medicare on the sacrificial table, while DoD will be the sacred cow that is spares. Just watch.

After last week, we are most likely on “the next leg down” of a depression. Just wait and see Obama’s actions and which side he takes — not the people’s, but the billionaires’.

I fear you understate the malefactor role of Standard & Poor, which collaborated in a system where they were effectively being paid to provide fake AAA ratings for bad securities. After they helped crash the economy, the ratings agencies should have been dissolved and the individuals involved should have gone to jail. If we’re to go on reputation, what is theirs?

You also understate the malefactor role of the President, who was under no obligation to sign those extensions to the Bush tax cuts. In fact, he had campaigned and was elected largely on his promise NOT to extend those tax cuts – any of them. The fact that he did so, combined with his giveaways to the banks and medical insurance companies, and his actions tending to the destruction of Social Security, Medicare, and Medicaid, lead to the conclusion that we were sold a malevolent Ronald Reagan in FDR’s clothing.

It’s useful to have one of the supposedly credible rating agencies say that the Bush tax cuts should expire, so okay, flog it.

But really, who cares what the hell S&P thinks?

In the reality-based community, they have no credibility at at all. Their original threat contained a minor ($2 Trillion, whoops!) error of assumption, and when corrected, they just shrugged and issued another threat and the downgrade anyway.

The fact that they included revenues in their report is classic fake even-handedness. It’ll never happen, they know it, and they’re ultimately only serving their Wall St. masters by feeding debtficit hysteria, the bipartisan solution to which will always be pain for ordinary people.

The senior executives and Board of S&P should all be in Supermax, not pontificating in the press and in front of Congress. There are millions of people without jobs and literally thousands dead (yes, poverty and uninsurance kill) in part because of their ridiculously false AAA ratings of subprime loan based investment products.

so, yeah, “S&P sez raise taxes on the rich.” Great. But it’s because we need more austerity, not more spending. Don’t kid yourself.